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Feb. 20, 2017, 6:47 a.m. EST

Gasoline prices may rise to a more-than-2-year high by Memorial Day

Prices may rise to $2.85 a gallon by late May, says GasBuddy

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By Myra P. Saefong, MarketWatch


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A spike in crude-oil prices has led to a sharp rise in gasoline prices from a year ago.

It’s that time of year again—when refinery maintenance season kicks in and the market makes a shift to cleaner-burning gasoline, disrupting production and lifting prices for the fuel at the pump.

But this year, it could be a bit different: GasBuddy says retail prices may climb to levels not seen since November 2014.

“We’re likely to see some major increases at the gas pump as the seasonal transition and refinery maintenance get under way,” said Dan McTeague, senior petroleum analyst for GasBuddy.

Prices for crude oil, which is used to make gasoline, have also climbed by more than 70% from a year ago, with futures prices for West Texas Intermediate  trading above $53 a barrel on Friday, compared with less than $31 the same time last year.

Crude-oil prices have climbed in large part due to production cuts by major crude producers following an agreement that was implemented at the start of the year.


GasBuddy

As of Friday afternoon, the retail price for a gallon of regular gasoline averaged $2.284 a gallon, up over 57 cents from last year’s average of $1.712, according to GasBuddy .

There has been an “appreciable” rise in gasoline prices, with much of that traced back directly to the low value of crude at this time last year, McTeague told MarketWatch.

Gasoline prices may have hit their bottom last week at $2.26 a gallon—at least until the fall season, he said.

Refineries are going through a turnaround period, which can last as late as the middle of April, and they’re not pumping out as much as they normally do, said McTeague. Shutdowns at the refineries can last several days or weeks and “create a crimp in supplies.”

Refineries are also preparing for a shift to summer-grade gasoline, which is more environmentally friendly than winter-grade gasoline. The cost of summer gasoline tends to be 10 to 15 cents a gallon more, depending on location, McTeague said.

If prices see the average five-year increase they usually do during the spring, retail gasoline could cost an average $2.85 a gallon around Memorial Day—a level not seen since late 2014, he said.

And “the issue of oil is still not resolved,” added McTeague. If the crude production cuts by Organization of the Petroleum Exporting Countries are successful, oil prices could climb by another $5 a barrel, toward $60, he said.

Read: Why OPEC’s oil production cut is a ‘gift to U.S. producers’

The record for OPEC is “nothing short of abysmal,” he said.

Recent industry data for the month of January estimate a 90% compliance rate with the reductions. But even if there is strong compliance, U.S. production is headed higher and that can put pressure on oil prices, said McTeague.

The Energy Information Administration pegged domestic crude production at 8.977 million barrels a day last week. The record level stands at about 9.610 million for the week ended June 5, 2015. U.S. crude supplies have already hit an all-time high.

Read: How U.S. crude-oil inventories rose to their highest level ever

Gasoline prices could move sideways in the next week but, heading into March with more refineries likely to be undergoing maintenance, the market will see an even tighter supply picture, McTeague said.

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.

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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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